US Consumer Could Bring Back the Reflation Trade

Both the dollar and Treasury yields quickly recovered from a knee-jerk selloff on Friday as investors wrote off a surprisingly weak employment report as a weather-related anomaly.

But if Friday’s retail-sales report is weak, the implications for the so-called reflation trade could fundamentally change the outlook for the dollar, Treasury yields and U.S. stocks.

The reason, market strategists say, is that the postelection surge in consumers’ optimism, as measured by so-called “soft” survey data provided by The Conference Board and the University of Michigan, has yet to translate into an actual pickup in consumption. In March, a survey gauging consumers’ attitudes related to the U.S. business environment jumped to its highest level in 16 years.

This is a huge problem for the reigning growth narrative, which contends that President Donald Trump’s purportedly pro-growth policies will stoke inflation and cause economic growth to accelerate, possibly forcing the Federal Reserve to raise interest rates more quickly than the market is anticipating.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza